FDIC frustrated with perception of bank failures

DAVE CARPENTER, The Associated Press

With the number of bank closings above 100 this year for the first time since 1992, the head of the Federal Deposit Insurance Corp. says she's frustrated at perceptions that U.S. taxpayers are on the hook for the costs of those failures.

"We have not borrowed a penny from Treasury," FDIC Chairman Sheila Bair reiterated Monday. "I hope we don't have to. If we do, we'll pay it back promptly."

In remarks to the American Bankers Association, Bair sought to dispel any false impression that the government is paying for the 106 banks that have been shut down so far this year. Taxpayers are not liable for the roughly $25 billion that this year's bank failures have cost the FDIC's federal deposit insurance fund.

Bank failures are expected to cost the fund $100 billion through 2013. The FDIC has asked banks to pay in advance $45 billion in regular premiums that would have been due over the next three years, hoping to avoid or at least delay having to ask the Treasury Department to help replenish the fund.

As the recent spate of bank failures drained the fund, the FDIC also imposed a special one-time fee on the banks earlier this year.

The FDIC can borrow to up to $500 billion from the Treasury – or $100 billion without seeking approval from the Treasury and Federal Reserve. But the FDIC has sought to avoid that partly because of fears it will appear to be another taxpayer bailout.

No matter how the fund is shored up, banks eventually will have to pay higher premiums to cover the costs of the failures.

The FDIC insures deposits at more than 8,000 institutions. The independent agency is backed by the government, and deposits are guaranteed up to $250,000 per account. The FDIC also still has tens of billions in loss reserves apart from the insurance fund.

The 106 bank failures so far this year, including seven announced Friday, are the most since 1992, when 181 failed at the end of the savings and loan crisis. Close to another 400 banks have been deemed at risk of failure.

Comptroller of the Currency John Dugan, who also spoke to the ABA, warned that the pace of bank failures may have slowed but isn't yet close to ending.

"We've got a ways to go to work through these failures," he said.

The regulators' remarks came against the backdrop of protests outside the downtown Chicago hotel where the ABA is meeting. Unions and activists have organized three days of demonstrations against what they call the efforts of the ABA and large banks to fight financial reform efforts in Congress after taking billions of dollars in taxpayer bailouts.

Bair did not address those complaints directly but said that banks are more heavily regulated than any other part of the financial services industry.

She said she would like to avoid another round of bailout stories.

"I know we all have bailout fatigue," she said. "Rightly or wrongly, it's been bad for the reputation of the industry."

Bair said she is hopeful the administration and lawmakers from both parties are moving toward agreement on the need to allow the government to dismantle troubled financial companies, rather than bail them out. The notion of institutions being "too big to fail," she said, "fed this crisis" by encouraging risk-taking.

"We need to end 'too big to fail,'" Bair said. "It needs to be a priority issue."